1. Field of the Invention
The present invention is directed to methods, computer-based systems and computer program products that recover tax revenue, and that in one particular operation assists in the recovery of taxes due on interstate sales, including mail-order and Internet sales, on which no tax was collected at the time of sale or subsequently remitted by a purchaser, and that in one further particular operation collects a simplified tax and appropriately routes the collected revenue to the appropriate governmental agency. In another particular operation, the present invention is directed to methods and computer-based systems that recover tax revenue on interstate sales where a tax amount was first determined and calculated for one of many different jurisdictions, and distributed through a central facility to the appropriate revenue agency or revenue agencies.
2. Discussion of the Background
At the present time the vast majority of sales that take place by mail-order or over the Internet (or other “virtual” sales forums) avoid taxation by either the state in which the selling company is located or the state in which the purchaser is located. For example, if a buyer in Maryland purchases a product over the Internet or through mail-order from a company in California, the seller does not collect sales tax on that sales transaction since the sale did not technically take place in California, and the buyer was not physically located in California at the time of sale. Maryland does not receive a tax on that sales transaction because, undoubtedly, Maryland revenue officials would not have been made aware of the sale. While the buyer, a Maryland resident, has an obligation to pay a Use tax, few individuals voluntarily pay the tax (or are even aware of their obligation to pay the tax).
At the present time state revenue agencies are limited in their ability to require out-of-state businesses with no physical presence in their state, e.g., mail-order or Internet sellers, to collect sales taxes that are due from purchases made by residents in their state. The determining factor as to whether a state can require a seller to collect its sale taxes is a detected “nexus”, physical presence (or lack thereof), on the part of the seller, which determines collection responsibility. In the example noted above, the state of Maryland cannot compel the seller in California to collect Maryland sales tax from the purchaser in Maryland because the seller in California does not have any physical presence in, i.e. “nexus” with, the state of Maryland. Thus, unlike intrastate sales, where the state may place the tax collection burden on the seller, the state does not have the legal power to place the tax collection burden on out-of-state sellers. Furthermore, due to the lack of information regarding the sale, and the lack of a communications infrastructure to send tax due notices or seamlessly collect the tax at the time of sale and monitor the remittance of funds, states routinely experience significant lost opportunities to collect taxes on interstate sales made via these mediums.
Moreover, if a business does not maintain any physical presence in a particular state, but sells merchandise to a resident of that state, the business is not burdened with collecting sales tax at the time the sale is made. However, most states that have sales taxes also place an obligation on the purchaser of that state to pay the required tax (as determined by state sales tax provisions) whether the tax is collected by the seller or not (i.e., the burden is placed on the buyer to voluntarily pay the tax). Certain states also have a “Use” tax which can be levied on such sales in lieu of a sales tax, but which is generally at the same rate as the state sales tax. The reality is, however, that such purchasers of mail-order and Internet sales will rarely voluntarily pay the required sales or use tax, therefore violating use tax laws in their state. Further, state revenue agencies are severely disadvantaged if the seller does not collect the required tax because the state revenue agency rarely finds out that a sale was made, and thus is unaware of the taxable sale. Since revenue agencies are not aware of such sales transactions, and as consumers rarely voluntarily pay the required applicable sales or use tax, a large amount of revenue is currently uncollected.
This problem of allowing such taxable transactions to go unrecorded and thereby be untaxed is accelerating rapidly as Internet sales increase. It has been estimated that lost revenue for state revenue agencies will be measured in tens of billions of dollars by the year 2002. Moreover, in-state taxpaying businesses have complained of a disadvantage to their respective firms in being required to charge sales tax, while mail-order and Internet sales do not impose and collect a sales tax.
In one effort to contend with this lost revenue opportunity, enforce taxpayer responsibility, and to create a level playing field for such in-state taxpaying businesses, some states have joined with other states in arrangements known as “Compacts”. Under such “Compacts”, Compact members agree to share transaction information retrieved via revenue department audits of in-state mail order and Internet-based firms with other members of the Compact. Such audits frequently reveal sales to residents of other states in the Compact. This information is then provided to the Compact members for purposes of billing their taxpayers for such sales. However, at the present time such Compact arrangements are fragmented and yield modest revenue recovery, and do not create the necessary scale to build an effective billing and collection system.
Also, it has been suggested at different times in Congress, pursuant to its Commerce Clause power to regulate interstate commerce, to require mail-order sellers to keep track of each out-of-state sale and to collect the appropriate sales tax for each out-of-state sale. However, at this time no such requirement has been implemented due to the burdensome nature of requiring a seller to monitor sales taxes which can vary not only between the different states, but also between different jurisdictions within the states. It has been estimated that there are thousands of different taxing jurisdictions (about 6,500), each of which has the authority to charge different sales taxes. Shifting such a tax collection burden from the states themselves to the sellers would serve as yet another taxation—a government mandated activity levied on sellers, which presumably would give “big business” an unfair advantage over small “mom and pop” franchises who barely have sufficient resources to conduct their own business, let alone calculate, collect and distribute interstate taxes for which the business gets no monetary gain or economic value. To further complicate matters, these jurisdictions have different tax rates, and also have different provisions for not taxing certain merchandise, e.g., some states do not tax the sale of food or certain clothing. Requiring a seller, particularly small businesses such as those emerging on the Internet, to collect the taxes for each of these different jurisdictions has been found to be burdensome and thus has not been implemented. Although a tax is due on the Maryland purchase, the California company is not required to collect the tax if the company has no physical presence in Maryland.
If Congress did act to change the law and provide a “national solution”, Congress would most likely require massive simplification. Moreover, the standard approach would remove the sovereignty of the 6,500 different taxing jurisdictions by imposing a single tax (or some modified tax) to be collected by the seller, and remitted to the appropriate revenue agency. The implications of this approach are addressed by comparing FIGS. 13 and 14. In FIG. 13, a consumer 1301 makes a purchase from a local vendor 1303 (referred to as “main street seller”). Because the transaction is made within a state, the main street seller 1303 applies the state and local sales tax that applies to that particular jurisdiction, and remits the same to a revenue agency 1305. These taxes are withheld and submitted to the revenue agency on a periodic basis. The present discussion is focused on sales tax, but the same discussion applies to employment “wage” taxes, transportation taxes and other taxes to be collected on behalf of multiple jurisdictions.
FIG. 14 is directed to a situation where the main street seller 1303 now wants to enter the business of becoming a remote seller 1400, perhaps by establishing an Internet web site that offers products to different consumers 1404 located around the United States or around the world. In this situation, the remote seller 1400 is relieved of the obligation of collecting sales tax for consumers 1402, if that remote seller 1400 does not have a nexus with the state of residence of the consumer 1402. However, if as discussed above, Congress imposes a legal obligation on the remote seller 1400 to impose a sales tax, and collect and remit that tax, the remote seller 1400 is placed in an unreasonably burdensome situation. As shown, a dutiful remote seller would be required to register as a seller with the 6,500 or so revenue agencies 1404, 1406, 1408 and 1410. Once registered, the remote seller 1400 would then be obligated to monitor the different taxes that are imposed on a particular consumer by the different revenue agencies. Thus, the remote seller 1400 must maintain a current knowledge of the taxes imposed by the respective revenue agencies, which may change over time, particularly after new elections in those particular jurisdictions are held. Once the appropriate tax rate has been identified, the remote seller 1400 must calculate the appropriate tax, include that tax on the purchase amount by the respective consumers 1402, and then remit with filing statements the collected tax to the respective revenue agencies, on a periodic basis. Certainly, the burden imposed by such a structure, particularly on relatively small up-start companies, would be unduly burdensome and not a practical solution. Thus, as discussed above, it is generally believed that the practical solution is to impose a seamless process for all transactions made, so that the remote seller 1400 will know how much tax to collect at any given time for any given consumer in any given jurisdiction.
Presently, the taxes that get withheld on the quarterly sales is about $41 billion in taxes and on wages its on the order of $275 billion. There is a cost for floating these funds. On a quarterly basis, the float cost to the government agencies is very large. So on an annual basis, if the remittance cycle time is reduced from about an average of 15 days to 5 days, the accelerated remittance could create an appreciable amount of otherwise lost revenue. This loss of money is not presently recognized as a limitation with the conventional approach to collecting taxes, because it is presently viewed that the complexity associated with actually requiring the sellers to collect and remit these taxes within a shorter period of time is not practical. Accordingly, for the single-jurisdiction sales transaction, the amount of revenue received by the revenue agency, is reduced by the time-value of money, by delaying the amount of time before the main street seller 1303 has to remit the collected sales tax.
As presently recognized, the above-described “solution”, is impractical in that it requires a federally mandated solution, which imposes a federal solution to resolve “state taxation issues” simply because there are no proposed practical solutions for collecting the taxes. As presently viewed, the mechanism of changing the tax rate at the state, and local jurisdiction level to be uniformly applied across the United States, is a “solution”, that is an attempt to change the “tax rate system” rather than changing the “tax collection machine” to accommodate the existing tax system.
In contrast to conventional wisdom, the present inventor recognized that rather than change the tax codes, a better solution for the consumer, remote seller and revenue agency, is change the “tax collection system” by having a centralized facility that performs the function of registering remote sellers, providing the remote sellers with information regarding the appropriate taxes that are to be due on any given purchase, and providing the infrastructure for collecting, distributing and reporting the information associated with those particular taxable events. The centralized facility could also be used to accelerate collection of corporate wage taxes, transportation taxes, international tariffs, foreign national sales taxes and the like.
Another problem with conventional tax revenue systems is that there are currently no efficient systems to route collected tax revenues to the appropriate revenue agencies, or to verify that the taxes are being collected. Such problems would only be exacerbated if a seller was required to collect sales taxes for all taxing jurisdictions on out-of-state sales.
One solution to a related, but different, problem is disclosed in U.S. Pat. No. 5,644,724 to Cretzler. This patent describes a system for more efficiently routing in-state sales tax revenues from credit card transactions to an appropriate state revenue collecting agency. However, the system of Cretzler is only applied to credit card transactions and does not even address interstate sales transactions on which no tax is currently collected, and for which no infrastructure is established to identify taxable events, determine if a tax was voluntarily paid on the taxable event, issue a notice if the tax was not paid after a predetermined period of time, and perform periodic checks to determine if the tax was subsequently paid.
Cretzler does not also address the significant burden associated with coding systems and product codes to conform to the multiple tax codes in the United States.
Presently, services are available that describe and update tax rates for different jurisdictions across the United States. Accordingly, subscribers are kept informed of different tax rates for different jurisdictions, which assist sellers in identifying appropriate taxes for situations in which those particular sellers have a nexus, and thus an obligation to collect and remit taxes. Furthermore, the service does not provide a function for registering that particular remote seller in the different revenue agencies to which the taxes may apply. Furthermore, the services do not offer the functions of remitting and electronically filing the tax revenue, in an efficient manner.